Parched
The Monthly Index of Economic Activity (IMACEC) showed unfavorable results in February, although we should not rush to pessimistic conclusions. Excluding the mining sector, the IMACEC expanded a modest 2.4%, but above the 1.4% for total IMACEC. Yet the trend in the seasonally adjusted IMACEC that excludes mining hasn’t been entirely negative.
As expected, in the March Monetary Policy Report the Central Bank revised the forecast range for 2019 GDP growth downward, from 3.25%-4.25% to 3%-4%. But we were surprised that the forecast range for 2020 was revised up, from 2.75%-3.75% to 3%-4%. Based on partial indicators and surveys, a reactivation of construction investment is expected.
Economic slowdown is consistent with weakening manufacturing activity. Moreover, February’s data corroborated the weakness in retail sales. The deterioration of the Argentine economy can be blamed for part of the slowdown. A year ago, taking advantage of a strong appreciation of their currency, Argentines descended on Chilean shopping malls in hordes.
Investment is struggling, too. Imports of capital goods fell by 7.7% in the 12 months to March. These figures are in contrast with the positive signs coming from the Capital Goods Corporation. The credit sector corroborates our relatively negative diagnosis.
In March, the value of exports marginally improved, though the 12-month variation remained negative. Export figures show a normalization of mining shipments, after the weather phenomenon that affected mines in January and February.
Unemployment showed modest signs of improvement in the December-February moving quarter, and the evolution of wages was favorable, while employment growth was weak, and payrolls fell.
After two months of downward surprises, March CPI was above expectations, at 0.5% vs. 0.3%. The 12-month variation was 2%, after two months at below the Central Bank’s 2% to 4% target range. With 2.1%, the 12-month variation of CPI excluding food and energy (IPCSAE) moved back into the target range, for the first time in 21 months. But we should not jump to the conclusion that inflationary pressures are mounting.
The Central Bank has postponed the “gradual and cautious” process of withdrawal of monetary stimulus, at least until yearend.
TPP11, the free trade agreement meant to replace the Trans Pacific Partnership abandoned by the United States, was passed by the Chilean House of Deputies. Although it is likely to pass the Senate, too, the nature of the vote in the lower house is cause for concern. Although TPP11 was initially pushed by ex-foreign minister and PPD President Heraldo Muñoz, the PPD joined other leftist parties in Congress in opposing the deal, possibly signaling a significant shift in the center-left’s commitment to free trade, and a widening nationalist tendency among both left and right.
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